The risk of taxpayers shouldering big loans borrowed by parastatals is worrying the National Treasury after it was forced to foot Sh1.3 billion on behalf of three State corporations that were in distress in the last financial year.
The National Treasury has revealed in the 2020 Budget Policy Statement (BPS), that the outstanding government guaranteed debt grew to Sh159.4 billion by June 30, 2019 from Sh138.8 billion recorded in the previous year despite not having issued any new guarantees.
The BPS is a policy document that sets out the broad strategic priorities and policy goals that guide the national and county governments in preparing their budgets for the financial year and over the medium term.
The BPS notes that in the 2017/2018 financial year, the government paid a total of Sh1.3 billion on behalf of State corporations that were in financial distress.
These debts comprised Sh301 million paid on behalf of Tana Athi River Development Authority (Tarda), Sh379 million on behalf of East African Portland Cement (EAPCC) and Sh739 million on behalf of Kenya Broadcasting Corporation (KBC).
"When a State corporation’s financial position is not able to support a debt for a project that is of national importance, the government may be called upon to provide a guarantee," the document reads in part.
The National Treasury however, provide a guarantee upon approval by Parliament.
But what should worry taxpayers is the revelation that contingent liabilities are frequently not recorded directly in the budget and thus are not subjected to budgetary oversight.
"There is need to monitor these contingent liabilities to avoid fiscal difficulties in the budget year in the event they happen," the document notes.Contingent liabilities are potential liabilities that may occur depending on the outcome of uncertain future event and are generally not shown in the statement of financial position, but must be given adequate disclosure.However, a contingent liability is only recorded in the financial statements if the contingency is probable and the amount of the liability can be estimated."This year’s BPS is more forthright about the fact that there has not been transparent quantification of contingent liabilities. Usual suspects, Kenya Airways, regional development bodies and some more," Mr Kwame Owino, the chief executive officer at the Institute of Economic Affairs, said in a tweet on Monday.COURT CASESA study conducted a few years ago identified some sources of liabilities in State corporations as ongoing court cases, penalties for non-compliance with statutory deductions and non-performance of […]